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Unformatted text preview: Chapter 1 Solutions Manual t/a Management Accounting: Information for Creating and Managing Value 5e by Langfield-Smith, Thorne and Hilton 1 CHAPTER 1 MANAGEMENT ACCOUNTING: INFORMATION FOR CREATING VALUE AND MANAGING RESOURCES ANSWERS TO QUESTIONS 1.1 There are several possible answers to the question. QANTAS, the national airline of Australia, has faced a number of changes to the business environment in recent years, including deregulation of the domestic aviation industry. This resulted in increased competition as new firms attempted to enter the industry. The most notable of these was two failed attempts by Compass to succeed in the market and gain market share by savagely cutting prices. Its major competitor, Ansett Australia, collapsed in 2001 resulting in QANTAS having almost a monopoly for a short period. A powerful UK airline, Virgin, has also entered the market, with a history of taking legal action against market leaders who attempt to intimidate them using predatory pricing. Further, Impulse Airlines, a local airline, started operations, only to be eventually taken over by QANTAS. On top of all this, the international terrorism crisis of 11 September 2001 saw a substantial contraction of international air travel for a period of many months, leading to the collapse of several US airlines many times the size of QANTAS. Other changes to the business environment have included unrest and war in the Middle East and speculation in oil prices resulting in volatility and serious increases in fuel prices, bombings in Bali in 2002, the outbreak of SARS in 2003, natural disasters such as the Asian tsunami, the heavy subsidisation of competing national carriers especially by Middle Eastern countries, the entry of Tiger Airways into Australia, extra capacity gained by Virgin Blue, the shifting of significant parts of engineering maintenance operations offshore, publicity surrounding a series of safety and engineering concerns and an audit by CASA in 2008 finding that maintenance by Qantas was not up to its own standards and financial uncertainty arising from the 2008 credit crisis and share market collapse. 1.2 Management accounting is defined as ‘processes and techniques that are focused on the effective and efficient use of organisational resources to support managers in their task of enhancing both customer value and shareholder value’. Value creation is a central focus for contemporary managers, and management accounting refers to the processes and techniques that focus on the effective use of organisational resources to support managers in their tasks of enhancing both customer value and shareholder value. Customer value refers to the value that a customer places on particular features of a good or service (and which is what leads to them purchasing the product). Shareholder value is the value that shareholders, or owners, place on a business – usually expressed in the form of increased profitability, increased share prices or increased dividends. usually expressed in the form of increased profitability, increased share prices or increased dividends....
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